Hedge Funds glossary

COLLECTIVE INVESTMENT SCHEME

A Collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.Terminology varies with country but collective investment schemes are often referred to as managed funds, mutual funds or simply funds (note: mutual fund has a specific meaning in the US). Around the world large markets have developed around collective investment and these account for a substantial portion of all trading on major stock exchanges

ACCREDITED INVESTORS

Accredited investors is a term defined by U.S. securities laws that delineates investors permitted to invest in certain types of higher risk investments, limited partnerships, and angel investor networks. The term generally includes wealthy individuals and organizations such as a corporation, endowment or retirement plans.
For an individual to be considered an accredited investor, he must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year. This rule came into effect in 1933 by way of the Securities Act of 1933. In Canada the same prerequisites apply, however one's net worth must be a minimum of one million dollars and cannot include the value of their principal residence

S.E.C.

S.E.C. The United States Securities and Exchange Commission (commonly known as the SEC) is a United States government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market. The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act). In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002 and other statutes

N.A.S.D.

N.A.S.D, Inc. (formerly known as the National Association of Securities Dealers) is an industry organization representing persons and companies involved in the securities industry in the United States. It is also the primary Self Regulatory Organization (SRO) responsible for the regulation of its industry, with oversight from the Securities and Exchange Commission. The NASD was founded in 1936.
The NASD Board of Governors consists of two staff members (the CEO and the President of one of NASD's divisions), seven individuals representing the industry, seven more individuals representing the industry, and two individuals categorized as "non-public" but also representing the industry

HEDGE

In finance, a Hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity. Typically, a hedger might invest in a security that he believes is under-priced relative to its "fair value" (for example a mortgage loan that he is then making), and combine this with a short sale of a related security or securities

MUTUAL FUND

A Mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income

LONG

In finance, a, Long position in a security, such as a stock or a bond, or equivalently to be long a security, means the holder of the position owns the security and will profit if the price of the security goes up.
Similarly, a long position in a futures contract or similar derivative, means the holder of the position will profit if the price of the underlying security goes up

SHORT

In finance, A Short selling or "shorting" is a way to profit from the decline in price of a security, such as stock or a bond.
Some investors "go long" on an investment, hoping that price will rise. To profit from the stock price going down, short sellers can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. The short seller owes his broker, who usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller

FUTURES

In finance, a Futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The futures price, normally, converges towards the settlement price on the delivery date.

SWAPS

In finance, a Swap is a derivative, where two counterparties exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The cash flows are calculated over a notional principal amount. Swaps are often used to hedge certain risks, for instance interest rate risk. Another use is speculation

DERIVATIVE

a Derivative is a financial instrument that is derived from an underlying asset's value; rather than trade or exchange the asset itself, market participants enter into an agreement to exchange money, assets or some other value at some future date based on the underlying asset. Examples of assets could be anything from bars of gold, to a stock, or even an interest rate. A simple example is a futures contract: an agreement to exchange the underlying asset (or equivalent cash flows) at a future date. The exact terms of the derivative (the payments between the counterparties) depend on, but may or may not exactly correspond to, the behaviour or performance of the underlying asset

HEDGE FUNDS INDICES

Hedge funds Indices There are a number of indices that track the hedge fund industry. These indices come in two types, Investable and Non-investable, both with substantial problems. There are also new types of tracking product launched by Goldman Sachs and Merrill Lynch, "clone indices" that aim to replicate the returns of hedge fund indices without actually holding hedgefunds at all

SWAPS

GLOBAL MACRO

Global Macro: seeking assets that are mispriced relative to global alternatives

ARBITRAGE

Arbitrage: seeking related assets that have deviated from some anticipated relationship.

Convertible arbitrage : between a convertible bond and equity.
Fixed income arbitrage : between related bonds.
Risk arbitrage : between securities whose prices appear to imply different probabilities for an event.
Statistical arbitrage (or 'StatArb') : between securities that have deviated from some statistically estimated relationship.
Derivative arbitrage : between a derivative security and the underlying security

EVENT DRIVEN

Event driven: specialized in the analysis of a particular kind of event.

Distressed securities : companies that are or may become bankrupt
Regulation D : distressed companies issuing securities
Merger arbitrage : between an acquiring public company and a target public company